Tuesday, March 05, 2013

... So why are politicians, in the Netherlands and elsewhere, pursuing a policy
that most economists regard as an elementary error? This was a question
raised by Coen Teulings, who is the director of the CPB, the Dutch fiscal
council. He was commenting on an IMF sponsored conference in Sweden, at which
most economists argued against short run austerity when the economy was weak,
and instead advocated dealing with budgetary problems through long term
structural reform. The politicians in the audience, led by the Swedish finance
minister Anders Borg, disagreed. He summarizes their view as follows:
“Politicians lack the ability to commit today to austerity measures to be
implemented tomorrow. Hence, the only option is to take action straightaway.”
...

Tuelings does not take this argument seriously, for good
reasons. Instead he provides three suggestions as to why politicians are
ignoring the economists. The first is a memory of the 1970s, when Keynesian
policies were pursued because many failed to see the structural impact of the
oil crisis. Politicians do not want to make the same mistake again. The second
is that economists neglected countercyclical fiscal policy for too long, and
therefore have failed to provide politicians with a clear guide to what policy
should be, like perhaps an equivalent to the Taylor rule for monetary policy.
Third, while both structural reform and short term austerity have political
costs, politicians can sell the latter more easily, and success can be
demonstrated more quickly. ...

Why do politicians ignore economists? It's a chance to implement ideological goals. Make an argument that sounds
good -- if we don't get the debt under control bad things will happen! -- and
use it to argue for spending cuts, smaller government, and ultimately lower
taxes on wealthy contributors to reelection campaigns.

In good times or bad, conservatives will find a way to argue that tax cuts for the wealthy are the key to economic success.

Comments

... So why are politicians, in the Netherlands and elsewhere, pursuing a policy
that most economists regard as an elementary error? This was a question
raised by Coen Teulings, who is the director of the CPB, the Dutch fiscal
council. He was commenting on an IMF sponsored conference in Sweden, at which
most economists argued against short run austerity when the economy was weak,
and instead advocated dealing with budgetary problems through long term
structural reform. The politicians in the audience, led by the Swedish finance
minister Anders Borg, disagreed. He summarizes their view as follows:
“Politicians lack the ability to commit today to austerity measures to be
implemented tomorrow. Hence, the only option is to take action straightaway.”
...

Tuelings does not take this argument seriously, for good
reasons. Instead he provides three suggestions as to why politicians are
ignoring the economists. The first is a memory of the 1970s, when Keynesian
policies were pursued because many failed to see the structural impact of the
oil crisis. Politicians do not want to make the same mistake again. The second
is that economists neglected countercyclical fiscal policy for too long, and
therefore have failed to provide politicians with a clear guide to what policy
should be, like perhaps an equivalent to the Taylor rule for monetary policy.
Third, while both structural reform and short term austerity have political
costs, politicians can sell the latter more easily, and success can be
demonstrated more quickly. ...

Why do politicians ignore economists? It's a chance to implement ideological goals. Make an argument that sounds
good -- if we don't get the debt under control bad things will happen! -- and
use it to argue for spending cuts, smaller government, and ultimately lower
taxes on wealthy contributors to reelection campaigns.

In good times or bad, conservatives will find a way to argue that tax cuts for the wealthy are the key to economic success.